Corporate earnings could recover and grow by 10 percent to as much as 50 percent this year, but there will be no “spectacular bounce” given the volatility of the market, First Metro Investment Corp. (FMIC) said.
The recovery of earnings, however, could drive the benchmark Philippine Stock Exchange index (PSEi) to climb to 7,800 to 8,100 points by year-end, while price earnings ratio is projected around 18 times to 19 times this year, Cristina Ulang, FMIC head of research, said during the investment bank’s media briefing.
She said the banks and property sectors will lead the way, but these two were the most affected when the pandemic hit the markets hard last year, when the strictest lockdown was first implemented. The sectors posted loss of an average of 36 percent last year, but the forecasts were even higher at 70 percent.
The banks were affected with its huge loan loss provisions, while the property sector were also hit due to low rental rates of shopping malls and slow residential sales.
“There could be a base effect [on their recovery]. The banks benefit from the RRR [reserve requirement ratio] cut of the BSP [Bangko Sentral ng Pilipinas], increase liquidity… The banks will lead in terms of recovery, followed by the property as OFW purchases of residential also very encouraging,” Ulang said.
FMIC also expects more of the conglomerates to shift their fund raising activity to the equity markets to a ratio of about 50-50, unlike last year when 80 percent of the firms were in favor of raising funds through the bond market.
“If the foreigners are coming, there may be a brisker market this year and the index heavyweights will benefit from any future re-balancing [of the benchmark index]. SM Prime, SM and telcos will be the leaders in terms of the additional weights in the PSEi,” she said.
Last year, funds raised from the PSE reached only P104 billion, but the figure is still 3 percent higher than the previous year’s P101 billion.
In contrast, bond listings at the Philippine Dealing and Exchange Corp. reached P387.83 billion for last year alone. Ulang said other recoveries were seen in the energy sector, except those with the capital recycling activity like AC Energy Philippines Inc. and Manila Electric Co., and also in the utilities sector, such as the telecommunications firms.
FMIC said stock picking in investment should be “very selective” with preference for stocks with strong balance sheet, good earnings prospect, below market and below sector average valuation, and good dividend paying capability.
It sees more listings this year with an initial public offering for both the main board and SME (Small, Medium, and Emerging) board, and also on real estate investment trust and other follow-on offerings.
Image credits: Nonie Reyes